China has revised its anti-money laundering laws, and users of virtual currency transactions will face penalties of up to $28,000

China has revised its Anti-Money Laundering (AML) laws, now including virtual asset transactions in its legal framework. This marks the first significant update to the country's AML regulations since their introduction in 2007.

Virtual Assets Under Scrutiny

On August 19, the Supreme People’s Court and the Supreme People’s Procuratorate officially recognized virtual assets as potential tools for money laundering. This update reflects China’s ongoing efforts to strengthen its financial regulatory environment in response to the rising use of digital currencies and other virtual assets.

Severe Penalties

The revised laws impose strict penalties on those found guilty of using virtual assets for money laundering. Fines can range from 10,000 Chinese yuan (approximately $1,400) to 200,000 yuan (around $28,000), depending on the severity of the offence.

In more severe cases, individuals could face prison sentences of five to ten years.

Closing Loopholes

The updated regulations prohibit the concealment of the source and nature of criminal proceeds, addressing a significant loophole in China's previous AML framework. The amendments also clarify what constitutes "serious circumstances" in money laundering cases, including refusal to cooperate with authorities or laundering amounts exceeding 5 million yuan (approximately $700,000).

Rise in Prosecutions

In 2023, the Supreme People’s Procuratorate reported a significant increase in money laundering prosecutions, with 2,971 individuals charged—a twentyfold rise since 2019. This surge highlights the growing prevalence of money laundering activities and the necessity for enhanced regulatory measures.

Speculation on Crypto Ban

The timing of these revisions has led to speculation that China might reconsider its stance on cryptocurrency trading. This debate gained momentum in July when Galaxy Digital CEO Mike Novogratz suggested that China could lift its ban on Bitcoin by late 2024, though the post was later deleted.

Further fuelling the discussion, Justin Sun, founder of Tron and Huobi, made a cryptic comment about China's potential unbanning of crypto on August 19. However, not all industry leaders agree with this view.

Yifan He, CEO of Red Date Technology, expressed doubts, asserting that China is unlikely to permit free Bitcoin trading with local currency.

Regulatory Challenges

Despite these speculations, China's stringent stance on cryptocurrencies remains evident. The country banned crypto exchanges in 2017 and intensified its crackdown on crypto activities in 2021. Recent reports indicate that Qingdao police are prosecuting a case involving the laundering of over $1.1 million through Tether (USDT), highlighting ongoing challenges in regulating virtual assets.

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